Events in recent months in the Middle East have not gone well for the United States but have gone exceedingly well for the Iranian government. Evidence indicates that Iranian leaders planned some of the events that have occurred, but they could not have planned them all. In any event, they must be surprised and delighted with the outcomes, especially judging from their rhetoric of late.

In Iraq, the peace process has fallen apart and the situation has devolved into growing sectarian violence that many believe is now a full-blown civil war. Our troops are doing their best in a massive effort to contain the swelling violence which is being fueled by the Iranians, but in many ways our troops are now arguably engaged in an exercise of futility.

The war between Israel and Hezbollah has certainly not gone as expected, at least from the vantage point of the Israelis and the West. Hezbollah, a terrorist organization with thousands of rockets supplied by the terror states of Iran and Syria, proved to be a much more formidable adversary than Israel expected. While Israel’s 34-day air campaign inflicted severe damage and large numbers of casualties, Hezbollah survived and is rearming for the next battle.

Military and political analysts were surprised early last week when Israel agreed to a cease-fire with Hezbollah. Many questions arise. Did Israel bow to pressure from the US and the West? Was Israel’s military unprepared for such a war as some reports have suggested? At this point we don’t know, and it is clearly uncertain what will happen next.

And one final question: If the US pressured Israel to agree to the cease-fire with a terrorist organization, backed by two terrorist nation-states – Iran and Syria – is that not the end of the “Bush Doctrine” if it wasn’t dead already? These are all questions we will discuss below.

While there are many unanswered questions, what does appear clear – from the war in Iraq to the latest developments in Lebanon – is that Iran is the big winner, at least so far. It has the US bogged down in Iraq and Israel seemingly in a defensive mode for the moment. This week, we’ll discuss these issues, how the US got to this point, how Iran got to this point, and see if we can make some sense of it all.

Background On US/Iran Relations

The US and Iran have been enemies since at least the time of the Iranian hostage crisis in 1979-1981. Iran was also the key player responsible for the creation of Hezbollah. Prior to 1982, Hezbollah was reportedly just a loosely organized group of Islamic guerillas in Lebanon. However, sometime in the early 1980s (reports are not clear, but prior to 1985), Iran sent some 1,500-2,000 of its “Revolutionary Guard” forces to join Hezbollah. This put Hezbollah on the map as a fighting force to be reckoned with, and Iran has supported Hezbollah militarily and financially ever since.

What most Americans do not know is that Iran was relatively cooperative with the United States following the tragedy of September 11, 2001 and reportedly supplied the US with certain intelligence prior to and during the war in Afghanistan.

Iran once again helped the US prior to the second Gulf War. While the Iranians despise the US, they despised Saddam Hussein even more as a result of the eight-year Iran/Iraq war in which over one million lives were lost. Thus, the Iranians provided the US with intelligence that encouraged the US to invade Iraq. Some believe the Iranians purposely provided the US with information suggesting the occupation of Iraq would not be difficult, in the hopes our forces would be undersized and therefore caught up in Iraq for a long time. If true, it worked.

Fast Forward To The Present Situation In Iraq

Things in Iraq couldn’t be going much better for Iran, and arguably couldn’t be going much worse for the US these days. In order to understand why, let’s quickly review the highlights of the last few months. Back in June, there was a momentary period of optimism surrounding the death of Abu Musab al-Zarqawi, the former head of al Qaeda in Iraq.

According to Stratfor, on the same night al-Zarqawi was killed, the Iraqi government announced the completion of its Cabinet. The US followed that move by announcing a drawdown of forces from Iraq. The next step in the process was for the Shia majority in Iraq to agree to stop attacking the Sunnis. Unfortunately, the Shia decided to abandon the peace process at the last minute and intensified their attacks on the Sunnis. As Stratfor put it, “The result was, rather than a political settlement, civil war.”

As we know now, the sectarian violence in Iraq has escalated dramatically since then to the point that even some of our generals admit the country is in (or bordering on) a civil war. The number of Iraqis killed in sectarian violence reached a new high in the last month alone. The growing violence among Iraq’s own people has reached a point where, on the one hand, it would be disastrous for the US to pull out, but on the other hand, our continued presence arguably borders on futility to some degree.

It should come as no surprise that it is the Iranians who are heavily promoting the sectarian violence in Iraq. While the Iranians would like nothing better than for the US to abandon Iraq so they can take over the country, they know that is not likely to happen, at least during the Bush presidency. So in the meantime, it is in Iran’s best interest to keep the US in a quagmire at least until there is a new administration in Washington. Unfortunately, they are doing a good job of it thus far.

Iran, Syria, Hezbollah & The War With Israel

In addition to promoting the sectarian violence in Iraq and making foreign policy life difficult for the Bush administration, Iran has played a pivotal role in the recent war between Hezbollah and Israel. As discussed above, and has been widely reported in the media, Iran has been supporting Hezbollah for many years, both militarily and financially. Syria has as well in more recent years. It has also been widely reported that it was largely Iranian and to a lesser extent Syrian made rockets that Hezbollah fired into Israel during the recent 34-day war.

There is one aspect of the Iran/Syria connection to Hezbollah that has not been so widely reported, at least in the American media. In the late 1980s and 1990s, Syria increasingly gained influence in Lebanon. It was no deep secret that Syria’s intention was the economic exploitation and eventual domination of Lebanon. In an effort toward that end, it was not in Syria’s best interest to see Hezbollah take over control of Lebanon. So a balancing act went on for years with Syria attempting to keep Hezbollah somewhat in check on the one hand, while also not alienating Iran. A part of Syria’s appeasement of Iran, and a way of lining its own pockets, was its selling of rockets and other military arms to Hezbollah for use against Israel.

But then an interesting thing happened. The former prime minister of Lebanon, Rafik al-Hariri, was assassinated in Beirut on February 14, 2005. Al-Hariri had been the prime minister from 1992 to 1998 and again from 2000-2004. Syria was widely suspected of carrying out the assassination. As a result, the US forced Syria out of Lebanon. Syria evacuated virtually all of its troops and armaments by the end of April 2005, ending years of occupation. With the withdrawal of Syria, however, this left a power vacuum for Hezbollah, even though a new government supported by the US took office in Lebanon in July of 2005.

Stratfor believes it was around this time, with Syria out of the picture in Lebanon (at least physically), that Iran made the decision to give Hezbollah the green light to begin the planning for a potential military offensive against Israel. Stratfor also believes this was a part of Iran’s overall plan to cause problems for the United States, both in Iraq and in Israel, our closest ally in the Middle East. Once again, if true, it worked.

On July 12, Hezbollah attacked Israel with a barrage of artillery and rockets and killed eight Israeli soldiers and kidnapped two others. This triggered the latest war in the Middle East. Israel has a history (1948, 1967 and 1973) of defeating its Arab enemies swiftly and decisively in past conflicts. However, in the latest conflict, Israel found itself up against arguably a more formidable opponent in Hezbollah. The 34-day war left southern Lebanon in shambles and Hezbollah battered, but certainly far from broken, and its standing in the Arab world is now higher than ever, unfortunately.

Why Did Israel Agree To The Cease-Fire?

Israel stunned most political and military analysts around the world last week by agreeing to a cease-fire. Conservative and liberal, pro and anti-Israel commentators continue to speculate as to why Israel would have agreed to the cease-fire. Just when Israel had finally amassed the necessary forces and armaments in southern Lebanon to mount a major ground offensive against Hezbollah, Prime Minister Ehud Olmert agreed to the cease-fire for reasons which are still far from clear, although several international powers including the US were exerting political pressure in favor of the truce.

The two kidnapped Israeli soldiers that sparked the war have not been returned. Hezbollah has not been disarmed, and in fact is already re-arming. Nothing whatsoever has been done to stop Iran and Syria from supplying Hezbollah with arms and money. Several major news services reported last week that Hezbollah is widely distributing Iranian currency to the citizens in southern Lebanon to help with the rebuilding process.

So why did Israel agree? Typically, Israel doesn’t bow to anyone’s pressure to back down, not even the US, especially when its enemies are lobbing rockets into its cities. There are several theories floating around out there as to why Israel agreed to the latest cease-fire, even though Hezbollah is already rearming.

One theory argues that Israel’s government has been under liberal rule over the last several years, and this has led to a general deterioration in its military readiness, both in troop levels, equipment, armament, munitions, supplies, etc. In particular, some stories claim that Israel’s reserve units were sorely lacking in manpower and equipment, etc. According to this theory, Israeli leaders were surprised and determined they had to agree to the cease-fire in order to rebuild troop strength, equipment, etc, for the next conflict. Frankly, I don’t put much stock in this theory.

Another theory, much more plausible in my opinion, goes as follows (more or less). Israel does not believe the cease-fire will hold. (Neither does virtually anyone else for that matter!) Hezbollah, while seriously wounded, believes it has scored a victory having stood up to the previously invincible Israeli military machine, at least in round one, and will be anxious to start round two. Israel believes, so this theory goes, that by going the political route and accepting the cease-fire now, they will have a green light to unleash a much larger force and crush Hezbollah whenever the terrorists start firing rockets again.

The cease-fire also offers Israel the time to prepare for a larger, bloodier battle. It should also be noted that at the same time Israel is rebuilding its forces for the next conflict, Hezbollah will be rebuilding its forces and its stockpiles of weapons as well. In fact, it already is. That will likely include larger, more powerful rockets that can reach deeper into Israel, thanks to Iran and Syria.

Of course, one of the more popular theories is that Israel bowed to pressure from the United States, France and others to agree to the cease-fire. There was a great deal of international pressure in part due to all the media coverage of the civilian deaths in Lebanon (many of which were due to the gutless placement of Hezbollah forces). Clearly, the US was working actively to get both sides to agree to such a deal. Secretary of State Condoleezza Rice was all over the Middle East in the two weeks prior to the cease-fire agreement trying to work some kind of a settlement. So the question remains, did Israel cave in to the international pressure?

The So-Called “Bush Doctrine” Revisited

I hesitate to bring this subject up, so I saved it for the end. Over the past month or so, the Bush administration either encouraged or pressured Israel to enter into a cease-fire with an armed terrorist organization on its border that is supported militarily and financially by two terror states. My question is, does this not violate the clear rules set forth by the president for dealing with terrorists and terror states shortly after 9/11, which have since become known as the “Bush Doctrine”?

The president began to introduce his new foreign policy on terrorism in the days just after the tragedy of September 11, 2001, and he more formally laid out this new strategy in a speech before a joint session of Congress on September 20, just nine days after the World Trade Center towers fell.

Prior to 9/11, there had been a great deal of ambiguity around the world regarding the definition of a “terrorist.” Before 9/11, for example, it was not uncommon to hear debates on terrorism in international circles focus on the following question: “Is not one man’s terrorist just another man’s freedom fighter?” Of course there still is some disagreement on what defines a terrorist, but President Bush’s address to Congress on September 20, 2001 and numerous speeches soon afterward offered stark new clarity and the warning of dire consequences for those who intended to harm America and her allies. Here are some quotes from President Bush’s speech to Congress and some of his public remarks soon afterward.

Freedom and fear are at war. The advance of human freedom -- the great achievement of our time, and the great hope of every time -- now depends on us. Our nation -- this generation -- will lift a dark threat of violence from our people and our future. We will rally the world to this cause by our efforts, by our courage. We will not tire, we will not falter, and we will not fail.

The United States should act preemptively to prevent strikes on U.S. targets. Washington should be willing to act unilaterally, alone or with a select coalition, when the United Nations or allies balk.

Our enemy is a radical network of terrorists and every government that supports them. Our war on terror begins with al Qaeda, but it does not end there. It will not end until every terrorist group of global reach has been found, stopped, and defeated.

[The War On Terror will be] a lengthy campaign unlike any other we have ever seen. It may include dramatic strikes, visible on TV, and covert operations, secret even in success. We will starve terrorists of funding, turn them one against another, drive them from place to place, until there is no refuge or no rest.

[The US will] make no distinction between the terrorists who committed these acts and those who harbor them. We will pursue nations that provide aid or safe haven to terrorists. From this day forward, any nation that continues to harbor or support terrorism will be regarded by the United States as a hostile regime. Every nation, in every region, now has a decision to make. Either you are with us, or you are with the terrorists. [Emphasis added, GDH.]

We’ve all heard these words, or parts of them, in speeches delivered by the president over the past five years. In fact, he used some of these same phrases in his weekly radio address just last Saturday. They are some of the most powerful images and messages sent by any American president in recent history. Most Americans welcomed and cheered those words in the days just after 9/11, including many liberals and even some in the anti-war crowd.

Does Recent Mideast Policy Contradict The Bush Doctrine?

I have not been shy in voicing my disapproval of a number of things President Bush has done since he’s been in office, even though I voted for him twice. Yet despite the president’s bad decisions on some issues, I have appreciated his strong and unwavering stand against terrorism. But I must admit I am questioning that position in light of the administration’s apparent pressure on Israel to agree to a cease-fire with Hezbollah, a known terrorist organization.

Unquestionably, Iran and Syria have transferred large quantities (thousands) of short and medium range missiles to Hezbollah, along with more conventional weapons and supplies, not to mention large sums of money. This is not speculation; the missiles, their types, their ranges, their damage potential, their estimated numbers and their country of origin are reported frequently and widely in the public media.

If this is not a violation of the Bush Doctrine, then I don’t know what is. Yet the US has pressured or encouraged Israel into a cease-fire with Hezbollah and has taken no actions to halt the flow of weapons from Iran or Syria, at least to my knowledge.

Furthermore, I don’t understand why the US would exert such pressure precisely at the point when Israel had finally moved the necessary ground troops and armaments in place to potentially deliver the knockout blow to Hezbollah, which would have also been a serious political setback for Iran and Syria. This is particularly troubling when virtually everyone knows the cease-fire will not hold.

The bottom line for me is this: Whatever credibility the Bush Doctrine had is now in serious question, at least in my opinion.

Conclusions

Whether we Americans care to admit it or not, Iran has significantly advanced its position in the Middle East in recent years to the disadvantage of the United States and to Israel. Since encouraging the US to invade Iraq and oust archenemy Saddam Hussein in 2003, Iran has systematically worked to undermine the US at every possible opportunity.

Once Iran realized that President Bush was not going to cut and run in Iraq, its leadership set about to greatly intensify the civilian unrest in Iraq and foment the sectarian violence which has increasingly engulfed that country over the last two years. Our military now finds itself in the midst of what many believe is a civil war. Yet if we leave, it is virtually certain that Iraq will fall under the dominance of Iran, thus making Iran the supreme power in the region.

Obviously, the Bush administration made some mistakes in Iraq. But it is at least equally important to keep in mind that the Iraqi people, or at least factions thereof, chose to reject democracy in favor of continued minority rule and a partitioned state. Others just favored a continuation of the violence. Iran catered to all sides and took advantage of all mistakes, and our troops have been bogged down in the process.

The war between Israel and Hezbollah did not go as most would have expected, and Hezbollah proved to be a formidable adversary, thanks largely to Iran. For reasons that are still not clear, Israel agreed to a cease-fire with Hezbollah on August 14. Hezbollah is beating its chest as the victor in the war, having stood up to the great Israeli war machine, and Iran itself has been publicly threatening Israel in the last several days. So it is probably only a matter of time (likely sooner rather than later) before the conflict is on again.

A matter of considerable interest is whether the US pressured Israel into the cease-fire. And this raises the whole question of the Bush Doctrine. If the US pressured Israel into a cease-fire with Hezbollah, a terrorist organization, which is sponsored by two terror states, then the credibility of the Bush Doctrine is shot, in my opinion.

So, Iran must be feeling very good. It is involved in two wars in which it is shedding no blood. It is spending a lot of money bankrolling terrorism, but with oil at today’s prices, Iran can certainly afford it! Saddam Hussein is gone, and the US is bogged down in Iraq. This is exactly what Iran wanted. Israel, America’s #1 ally in the Mideast, is preoccupied with Hezbollah, Iran’s surrogate. Life is good if you’re Iran.

But it gets even better for Iran. Since the war between Israel and Hezbollah broke out on July 12, one important issue fell out of the news for all practical purposes, at least until the last few days. Iran’s nuclear program. During the 34 days of the war, we heard virtually nothing about the fate of Iran’s nuclear program. How convenient!

The United Nations demanded earlier this year that Iran halt its nuclear program and referred Iran’s case to the UN Security Council. In June, the Security Council offered Iran a supposedly lucrative incentive package to suspend its nuclear program. Today (Tuesday), Iran delivered a sealed written response to the UN which has not been made public as this E-Letter is finished. However, Iran’s top nuclear negotiator said today that his country is ready to “return to serious talks” on its nuclear program as early as tomorrow, but it will not suspend the program.

To this I would say, don’t get your hopes up. In fact, I don’t see any reason why Iran would halt its nuclear program. The United Nations is not going to doing anything about it. UN resolutions are meaningless and have no teeth.

And let’s face it, what is the US going to do about Iran at this point? A military confrontation with Iran to remove its nuclear program is not realistic at this point for several reasons. First, it is not politically feasible. President Bush is unpopular, he is in the twilight of his presidency and the American people would not support such a war. Second, with a large chunk of our military tied up in Iraq, a second and potentially larger war in Iran would leave the nation dangerously vulnerable. Third, it is highly doubtful that a single one of our “allies” would join us in such a mission.

Obviously, the information I’ve presented in this E-Letter does not paint a pretty picture. As you can see, I think it is pretty clear that Iran has been the big winner in the Middle East over the last several years. I’m certainly no military expert, but this is how the situation looks to me.

And I’ll bet the picture looks at least somewhat similar to Iran. Maybe that’s why the “nut-job” of a president Iran has makes outlandish threats day in and day out threatening to wipe out Israel and the US and take over the world.

Forecasts & Trends E-Letter is published by Halbert Wealth Management, Inc. Gary D. Halbert is the president and CEO of Halbert Wealth Management, Inc. and is the editor of this publication. Information contained herein is taken from sources believed to be reliable but cannot be guaranteed as to its accuracy. Opinions and recommendations herein generally reflect the judgement of Gary D. Halbert (or another named author) and may change at any time without written notice. Market opinions contained herein are intended as general observations and are not intended as specific investment advice. Readers are urged to check with their investment counselors before making any investment decisions. This electronic newsletter does not constitute an offer of sale of any securities. Gary D. Halbert, Halbert Wealth Management, Inc., and its affiliated companies, its officers, directors and/or employees may or may not have investments in markets or programs mentioned herein. Past results are not necessarily indicative of future results. Reprinting for family or friends is allowed with proper credit. However, republishing (written or electronically) in its entirety or through the use of extensive quotes is prohibited without prior written consent.